The world of managed repair is being argued about and fought over in Florida. While most property insurance policies have traditionally allowed insurance companies to elect the option to repair or replace damaged property, few insurance companies elected the option when it comes to real property damage. This is no longer the case in Florida.

Several Florida Office of Insurance Regulation-approved property insurance forms allow insurers the option to select a preferred contractor to repair damage. Some insurance companies offer premium discounts to policyholders who elect these property insurance policies.

A recent Florida appellate decision upheld the right of the insurer to select the preferred contractor and held that a policyholder breached the policy by not signing work authorizations for that preferred contractor to do the repair after the policyholder assigned the insurance contract benefits to another contractor.1 The court noted the case facts:

The homeowner suffered water damage to her home. Her insurance policy with appellant People’s Trust Insurance Company contained a preferred contractor endorsement. She notified People’s Trust of the damage. After an inspection, People’s Trust advised the homeowner that (1) coverage existed for her claim, and (2) pursuant to the endorsement, the company elected to use its preferred contractor to complete repairs.

The homeowner used appellee First Call 24/7, Inc., to make the repairs. People’s Trust paid $6,800 to First Call for emergency services. People’s Trust requested the homeowner to complete a work authorization for the remaining repairs, so that its preferred contractor could commence restoration services. The homeowner never authorized the work and People’s Trust told her that she was in breach of the insurance contract.

First Call submitted an invoice to People’s Trust for $19,863.96 for restoration services. People’s Trust did not pay the bill, so First Call brought suit as the assignee of the homeowner. Both sides filed motions for summary judgment….

The material legal analysis and holding of the case were discussed:

The homeowner reported her loss on May 1, 2017. People’s Trust inspected the property on May 4, 2017. On May 25, 2017, within 30 days of the inspection, People’s Trust timely notified the homeowner that (1) there was coverage for her reported loss, (2) People’s Trust invoked its option to indemnify the homeowner by means of repair, and (3) People’s Trust elected to use its preferred contractor to repair the property.

Because People’s Trust timely invoked its option to repair, a new repair contract was formed binding the homeowner and obligating People’s Trust’s preferred contractor to perform the repairs within a reasonable time. People’s Tr. Ins. Co. v. Tosar, 46 Fla. L. Weekly D2651, 2021 WL 5912737, at *6 (Fla. 3d DCA Dec. 15, 2021).

Once People’s Trust exercised its option to repair, the homeowner was bound to execute all work authorizations to allow contractors and related parties entry to the property and to pay the deductible stated in the declaration page of the policy, pursuant to express conditions in the policy. The homeowner failed to execute the work authorization despite three requests by People’s Trust. Such a failure was a material breach of the policy.

Some question why a contractor needs to see a policyholder’s insurance policy to do the repair work. This is a great example of why a restoration insurance contractor would want to see it. What happens if the contractor gets an AOB, starts the work, and the insurer then elects to repair the property with its own contractor? This case is not helpful to restoration contractors trying to promptly do restoration construction. All AOB contractors should be aware of this case and be on the lookout for these provisions increasingly found in some property insurance policies.

Public adjusters routinely call me when these provisions are found in policies as well. If the insurer elects to repair the property, there is not a payment of insurance proceeds—how is the public adjuster to get paid? Does the public adjuster contract contemplate this situation? Is it ethical to charge a fee for the real property damage if a preferred contractor does the work? What happens when the insurer really does not want to do the work but makes the repair election to leverage down a claims payment?

This is also no panacea for insurers making this election. An insurer electing to repair transforms the insurance contract into one that is a construction contract. And the repair has to be done right. Construction is rarely done in accordance with the law, with subcontractors who comply with OSHA requirements, in compliance with state workers’ compensation requirements, and pursuant to specifications found in the materials being placed into a structure. Insurers opting for this are banking that the long tail of construction defects will not bite them later. I would not be surprised if the policyholder who signed the AOB later comes back with a lawsuit for poor construction against the insurer.

There is much more study to do about this case and this particular policy form, which allows appraisal to determine the scope of work to be performed. But this is a special date that comes only once a year. Time for fun.

Thought For The Day

Today you are you! That is truer than true! There is no one alive who is you-er than you!
—Dr. Seuss
1 People’s Trust Ins. Co. v. First Call, 4D21-1504 (4th DCA March 9, 2022).